Who's to Blame for Corporate Misgovernance in Indian Startups? According to Nithin Kamath of Zerodha, the venture capital ecosystem should also share responsibility for corporate misgovernance along with the founders. Amitabh Kant, the G20 Sherpa for India, stressed the significance of self-regulation and good governance for startups and entrepreneurs.
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Investor sentiment has soured in an already fragile fundraising environment as a result of a series of corporate misgovernance controversies in well-known Indian startups including BharatPe, Trell, Zilingo, GoMechanic, and most recently, Byju's and Mojocare.
Raising capital is not as easy as it was in 2020 and 2021, and due diligence for founders has grown longer. But who's to blame for this?
"While founders will be blamed, the venture capital (VC) ecosystem is equally to blame," Zerodha Founder and CEO Nithin Kamath said, adding that "the root cause of this is the overestimation of the size of the Indian markets by founders and VCs."
Corporate governance issues coming to light in Indian startups will only increase with time. While founders will be blamed, the venture capital (VC) ecosystem is equally to blame
— Nithin Kamath (@Nithin0dha) June 29, 2023
The root cause of this is the overestimation of the size of Indian markets by founders and VCs. 1/10
According to Kamath, the majority of VCs made incorrect calculations and may have oversold the India opportunity to their investors. The billionaire founder expected that the corporate governance problems that are currently plaguing Indian startups will only worsen over time.
"Instead of stereotyping, there is a need to identify the pattern in startups facing such issues," Paytm CEO Vijay Shekhar Sharma said. He believed that startups are managed greatly when their boards treat them in a disciplined manner.
Amitabh Kant, the G20 Sherpa from India, stressed the significance of self-regulation and good governance for startups and business owners on Monday at Startup20 summit.
Startup innovators begin innovating but neglect strong governance in the process. A startup today could become a Fortune 500 corporation tomorrow. So the issue of financial propriety and governance is important, Kant said.
In addition, Kant emphasised that startups themselves must create a culture of excellent governance among them.
The government must be kept at bay.
"Self regulation is the key from inception to early stage to maturity to IPO," he stated.
"We cannot blame startups for not having good governance. There are lapses in the self-regulatory framework, which these recommendations aim to fill. Companies have to focus both on values and valuation, but it is tough for them to balance," said Ramanan Ramanathan, the startup corporate governance committee member and former mission director of Atal Innovation Mission, at the event.
Vivek Pandit,senior partner at McKinsey and Company, and one of the panelists, added that investors need to realise the importance of transparency.
"For example, whistleblowers should see the benefit of coming to light instead of living in fear. Only a self-regulatory framework can handhold such practices for conflict resolution," he said.
There is no financial winter in the startup space, according to Kant, who also mentioned the "spring" of capital availability for strong firms.
He noted that there are plenty of dollars floating around the world looking for well-structured good projects.
